Industrials

• JD.com (JD)’s revenue growth is a strong support for JD Logistics’ revenue.
• JDL successfully acquired corporate clients and expanded warehouse network in 2021.
• We believe the stock has an upside of 40% and a target price of HK$27.

• On March 11, I participated in an ESG meeting of Kurita Water Industries (6370). I would like to briefly touch on the content of the meeting.
• Kurita’s commitment to strengthening its executive officer structure requires stronger board oversight and further transparency, and there is considerable room for corporate governance reform.
• Its D&I initiatives are just beginning. Water resources are a very important environmental issue, and Kurita has a very important role to play and is expected to contribute.

• Every so often, sudden shocks reduce Hamamatsu Photonics’ usually high valuations. This is one of those times. 
• Valuations are starting to look attractive compared with their 5-year ranges. But not compared with their 10-year ranges.
• Strong 1Q results support FY Sep-22 guidance. Management’s 3-year sales and profit forecast would be reasonable in a normal operating environment. But the environment is not normal. 

• After a 35% price decline in 2021 and 11% performance YTD, we are exploring if SMM is able to capitalize on the high oil price environment.
• We will look at its recent financial performance, orderbook, and financial forecast in 2022.
• We will also look at how to value the company and the key risk with our valuation.

• On 10 March, HAL Holding announced an intended voluntary public €4.2 billion cash offer of €32.50/share. Coming from a subdued period for the industry, the multiples aren’t too generous: 8.0x EV/22e EBITDA.
• A 28% premium coupled with the current volatile market environment means that the offer is most likely to succeed. HAL and associated parties now control 48.9% of the shares.
• The median-implied equity value across multiples is €36.36/share, but investors are cashing out now: a vehicle set up by HAL is buying shares in the market at the offer price.

• Recent events in Ukraine should be highly favourable for Chiyoda as they raise the potential for LNG capex. 
• US to Europe deliveries could involve significant liquefaction capacity build-out at good pricing points and even hydrogen could be in the mix. 
• If orders come through and rising profit drives the share price up that could also lead to positive capital structure changes.

• Since my first analysis of the company, H&E Equipment outperformed.
• The management has recently announced an ambitious investment program that will result in a rapid expansion of the business.
• At the same time, the business is experiencing higher utilization rates, improving margins and upward multiple repricing.

• This morning Institutional Shareholder Services recommended against both Toshiba’s break up plan and 3D’s alternative proposal. 
• Both proposals looked uncertain and with ISS coming out against them it now appears more likely that both will be rejected. 
• That leaves Toshiba in limbo once again and we aren’t convinced the exit will be a privatisation.

• Jardine Matheson Holdings (JM SP)‘s underlying net profit in FY21 was up 39% against 2020, and just 5% shy of 2019’s level.
• The latest US$250mn buyback program appears to have been completed.
• Shares are down ~5% since the FY21 results. At a ~28% discount to NAV, JMH is inexpensive here. 

• KOSPI has seven lockup release events that are likely to hit the market. And all of them are IPO institutional and ESOP lockups.
• Whether these IPO institutional/ESOP lockups will hit the market directly correlates with the return size from the offering price. And most of them are still far above the offering price.
• Therefore, it is highly likely that a meaningful share price correction will occur on each release date. This correlation pattern has been more pronounced in recent lockup release events.

• We highlight the closing of the pricing gaps between the Korean common and pref shares, which is likely to be accelerated by the free market promoting new Korean President Yoon.
• These measures include strengthening investor protection in the event of a spin-off of a new business listing, incorporating compulsory tender offers, and improving short selling systems and foreign exchange operations.
• We believe these measures to emphasize on the free markets are likely to improve minority shareholder rights and the gaps between the common and preferred shares could narrow further.

• Hindustan Aeronautics (HAL) procures Rs40-42bn worth of spares and parts (used in ROH) from Russia, for which it has maintained inventory to cater to the requirement for at least next 8-9 months.
• The company is also focusing on indigenous production of Russian supplies to reduce the import dependence.
• Management mentioned that Russia has confirmed to supply critical raw material to the company, but the payment mechanism is yet to be established.

• Stagecoach has agreed to a 105p cash offer from DWS (37% premium, 14.7x EV/Fwd EBIT). The board has withdrawn the prior recommendation for an all-share merger with National Express.
• National Express could respond by increasing its offer in line with DWS’s, but that would imply giving away c. 50% of the combined company, which I think unlikely.
• The offer is not incredibly generous, but there are risks (soaring fuel prices, inflation, etc.). Gross spread is nil and the offer is likely to close.

• We have articulated why we believe Japan Post Bank and Japan Post Insurance could have 100%+ upside.
• We further believe that Japan Post Holdings also offers very significant upside potential.
• His comes not just from its subsidiaries’ performance but also improvements in post office profitability and shrinking of the holdco discount.

• Sold off in the market rout as it is a small-cap stock although growth potential is intact. 
• Margin decreased but revenue increased followed by lower expenses to sales ratio. 
• China High Speed Transmission Equip Grp (658 HK) build-up in inventories and increase in the account receivables reflect management’s confidence and action to prepare for a higher revenue growth.

• The Composite Document detailing the Conditional Voluntary General Offer for liquid chemical storage and handling outfit Dragon Crown Group (935 HK) (DCG) is now out.
• The Offer Price is HK$1.28/share. The Offer is conditional on 90% acceptance, with 86.91% in the bag.
• This will probably turn unconditional next week. Trading tight to term. 

• We reiterate our Buy rating with a revised TP of INR2,130, implying a potential upside of 25%. 
• TCIE is a well-established player in the Express Logistics segment, with a pan India presence and catering to 95% of pin codes.
• With a lease-based model for most of its required assets, TCIE enjoys greater operational flexibilities and generates a better return on assets

• Traditional core businesses to benefit
• Strategic investments to ‘fire up’
• ESG framework details in 2Q22

Management is optimistic, expecting CMS’ traditional core businesses to benefit from higher development activities in Sarawak while its strategic investments — MPAS and OMS — would ‘fire up’ in 2022. We make no change to our earnings forecasts and TP. Trading at 5.9x FY22E PER, 0.4x P/B and 0.4x our e.RNAV, the stock is deeply discounted. Our TP, based on 0.7x RNAV, implies 10x FY22E PER vs. LT mean of 14x.

• The TIGER Tour Leisure ETF shows the fastest AUM growth among the local themed ETFs in Korea. It seems clear that this is due to the reopening expectations.
• The absolute size of AUM seems small. But the number of components is only 19, and most of them are small caps. So the actual passive impact is not small.
• Another noteworthy aspect is that the rebalancing is pretty straightforward. It primarily relies on the float-adjusted market caps. So, the rebalancing estimation visibility is relatively high.

• SITC International (1308 HK) achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.
• While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. 
• Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.

• In this insight, we review Warren Buffett’s stakes in Japanese trading  companies and review investment opportunities in Korean trading companies amid a war between Russia and Ukraine. 
• The recent war between Russia and Ukraine has resulted in higher commodities prices. This has boosted the share prices of commodities related companies globally, including Japanese and Korean trading companies.
• We would focus on GS Global Corp, Hanwha Corporation, Posco International Corporation, and LX International as Korean trading companies that could continue to outperform the market amid war in Ukraine. 

• KRX officially announced the rebalancing results of the KOSPI Size Index Series. The effective date is March 11.
• Of these, new MidCap entrants are what matter the most. This rebalancing delivers a total of 26 new MidCap entrants.
• The three stocks shown below have ADTV of over ₩5B and passive flow x ADTV of 1.0x or higher: CJ Logistics, GS Retail, and Lotte Rental.

• Hitachi Transport System (9086 JP) has been “virtually” for sale since October 2019 but it did not pop when others did then. But SG and HTS “consciously uncoupled” in 2020.
• Mid-Year last year saw news HTS was entertaining offers, which didn’t go anywhere but newer news suggests Round 2 of a new course of bidding is done. 
• And the stock keeps on going up and up and up.

• Hino announced during market hours that it was being probed for falsifying exhaust data prompting a 14.8% drop in the stock price. 
• At its press conference the company revealed that up to 116k vehicles were affected and roughly 35% of domestic production would be halted. 
• Some uncertainty remains and valuations after the fall are reasonable rather than exceedingly cheap so we would be hesitant to bottom fish here.